The Baird/STR Hotel Stock Index’s 6.9 percent drop was steeper than the S&P 500’s 3.9 percent decline.

THE BAIRD/STR Hotel Stock Index dropped significantly in February, 6.9 percent to 4,841 points, erasing the sector’s early year-to-date gains. The loss resulted from higher interest rates and stock market volatility, according to STR.

The drop comes after the index ended 2017 with a 32 percent increase for the year. “Investor expectations for the hotel companies were elevated heading into fourth-quarter earnings, and initial 2018 guidance ranges, particularly for the hotel REITs, were generally disappointing,” said Michael Bellisario, Baird senior hotel research analyst and vice president.  “With stock prices and earnings estimates down across the board, expectations appear more appropriately balanced today versus just a few weeks ago.”

The February results also follow strong performance in January, said STR President and CEO Amanda Hite. “January 2018 was the strongest January on record, despite the tough comparisons created by the inauguration weekend in 2017,” Hite said. “Even as the post-hurricane impact in Texas and Florida slowly subsides, U.S. hotel room demand remains robust, and the annualized key performance indicators point to another healthy year. STR pipeline numbers continue to show a slowing in rooms under construction, which will bode well for a continued and healthy performance run. The only dark cloud on the horizon is, and likely will be, a lack of pricing power. Fourth-quarter real ADR (ADR growth minus the rate of inflation, as measured by CPI) was just 0.2 percent.”

The Baird/STR index drop was steeper than the S&P 500’s 3.9 percent decline, but less than the MSCI REIT (RMZ) dip of 7.9 percent.  The Hotel Brand sub-index decreased 4.6 percent to 7,570 points from January to February, and the Hotel REIT sub-index decreased 12.1 percent to 1,527 points.